The American Bankers Association’s Community Bankers Council sent a letter to members of the U.S. Senate about enforcing a specific provision within the GENIUS Act, which Congress passed last year to regulate stablecoins.
The members of the ABA’s Community Bankers Council, which consists of bank leaders, are urging legislators to make clear in market structure legislation that the prohibition on interest applies to affiliates and partners of stablecoin issuers.
“Anything less will put economic growth and local communities at risk,” the council members wrote in a letter to senators.
The council members stated that the GENIUS Act, while not perfect from a community bank perspective, was a reasonable attempt to bring the stablecoin market into the regulatory light. They said that one of its most important provisions was a ban on interest payments. That was put in place to ensure this new payments market can develop and mature without becoming a competitor to bank deposits and disintermediating community-based lending.
The law dictates that stablecoin issuers cannot pay interest because allowing inducements like interest payments, yield, or rewards could incentivize customers to park their savings not in a bank, but in stablecoins.
“Congress recognized that this could significantly disrupt community lending because banks use those deposits to provide individuals and businesses with the loans they need to get a home or expand a local business,” the letter states.
Without this prohibition, the U.S. Treasury has estimated that $6.6 trillion in bank deposits would be at risk, according to the council members.
The ABA council pointed out that some companies have exploited a perceived loophole allowing stablecoin issuers to indirectly fund payments to stablecoin holders through digital asset exchanges and other partners.
“With this activity, the exception swallows the rule. If billions are displaced from community bank lending, small businesses, farmers, students, and home buyers in towns like ours will suffer. Crypto exchanges and the constellation of stablecoin-affiliated companies are not designed to fill the lending gap, nor will they be able to offer FDIC-insured products, a point they omit from their aggressive advertising,” the letter says.
The ABA concludes by calling on lawmakers to time to make clear that the prohibition on interest applies to affiliates and partners of stablecoin issuers.